Source of picture: www.managingthedragon.com

By John Richardson

I love the phrase used by Andrew Peaple of the Wall Street Journal in this article on China's property "bubble": Getting a straight answer is like "nailing jelly to a wall", in other words xxxxxx impossible. I will be in Shanghai next week on a business trip so will attempt to do some first-hand nailing.

The World Bank, Peaple points out, says that income growth in China is keeping up with price rises. This is a view supported by the China Economic Quarterly, which also makes the point that there remains a lot of pent-up demand for housing.

Property prices rose by 3.9% in 70 of China's large and medium-sized cities, but there does seem to be the possibility that highly localised much bigger bubbles are being inflated. Housing affordability in Beijing looks to stretched and prices in October rose by 13.8% in Shenzhen.

Still, in three of the 70 cities surveyed property prices actually fell.

The again, though, Zhang Xin, chief executive of Soho China - one of the country's most successful privately owned property developers - was quoted in several media reports as saying that a big bubble was, indeed, being pumped up. She blamed this on the big increase in bank lending, the cornerstone of the government's economic stimulus.

"Real estate prices should only go up because people want to actually use the space, but at the moment we can see more and more empty buildings across the whole country and in every real-estate segment," she was quoted as saying.

Vacancy rates in the Pudong district of Shanghai are as high as 50% as more buildings keep going up, Zhang added.

"In Manhattan they have vacancy rates of 10-15% and they feel like the sky is falling."

The danger for chemicals consumption is that changes in government policy for the property sector could have a big detrimental effect.

Tax breaks, low interest rates and smaller down-payment requirements have fuelled this year's boom - along with the plentiful bank lending.

Another connected issue is assessing how much chemistry goes into China's construction sector.

In the US, for example, the American Chemistry Council (ACC) assesses that the construction sector purchases $8 of every $1,000 of chemicals output.

"A big problem in China is the huge variance on what people do to their homes, from very basic equipping of steel and concrete box-like apartments to, of course, the super-rich who are ripping out tiles and refitting kitchens almost as often they change their underwear," said a Shanghai-based office worker.

Nailing jelly to the wall would no doubt have been a fair description of getting reliable data out of the US economy during the early part of the last century.

But back then it mattered far less to the rest of the world.

Abu Dhabi ahead in the race?

Source of picture: www.gulftrackservices.com

By John Richardson

The global basic chemicals industry is likely to end up under the dominant control of the Middle East, and possibly Asia, within the next 3-5 years, a senior chemicals industry source told this blog.

"We have known for a long time that the centre of gravity is shifting from West to East, but the economic crisis has accelerated this whole process.

"It was easy credit that enabled the West to keep on growing despite high oil prices with some of that credit going into speculation that helped drive energy costs higher.

"Now that the credit bubble has burst we are left with deeply entrenched and very long-term problems, while the Middle East is sitting on a hydrocarbons cash-pile thanks to the extraordinary global economic growth of 2005-2008."

The only barrier to acquisition of a lot more Western assets - including quite possibly high-value technology positions that have to date remained off the table - was politics, he said.

But a second source added: "While I agree that the shifting of ownership has been speeded up by the crisis, I think the West will keep hold of technology positions - especially in downstream specialities.

"Chief executive officers (CEOs) of US and European countries are under pressure to move away from basis chemicals, and so differentiation needs to be preserved.

"But it is true that we have already seen transfer of very valuable polymer technologies."

SABIC's acquisition of GE Plastics was one such transfer with the renamed SABIC Innovative Plastics now seeking to buy high-end polycarbonate (PC) technologies.

The economic recovery, which the second source believed would be sustained, would also give the CEOs some breathing space to negotiate better terms with prospective buyers of basic petrochemicals.

These comments came after ICIS reported that the Abu Dhabi-based International Petroleum Investment Co (IPIC) was in talks with Bayer MaterialScience and four other global petrochemical groups.

But an IPIC spokesman later said: "At present there are no firm plans to do anything with Bayer MaterialScience, or any other chemical company. A number of initiatives are under consideration internally, but nothing has been decided."

IPIC has already acquired Canadian-based polyolefin major Nova Chemicals and is planning the huge Chemaweyaat chemical city in the new Mina Khalifa Industrial Zone.

It also has a 64% of Austria-based polyolefins group Borealis.

"What's interesting about the Chemaweyaat project is, first of all, its sheer scale (it includes several crackers, including a 1.45m tonne/year one due to start-up in 2012) and the fact that the range of derivatives downstream will be more diversified than is already common in the Middle East," the first source added.

"On a straight cost competitiveness basis, you might think that liquids cracking, which is going to happen at Chemaweyaat, doesn't make sense. But this is more than being about straight economics - it's about economic development and job creation."

And my colleague, Nigel Davis, recently wrote: "Dow Chemical on 12 November laid its cards on the table regarding its so-called 'asset light' strategy.

Dow is working through an arbitration process following its failed deal in Kuwait. The company says it is now talking to two potential partners for a proportion of it olefins assets and its polyethylene business. "

The future ownership of US petrochemicals assets in the US is also attracting a great deal of interest because, despite what could be deeply ingrained economic problems, it's a huge polymer and chemicals market.

And as Nubuo Tanaka - executive director of the International Energy Agency (IEA) - said in a presentation in Singapore earlier this week, shale gas had resulted in a "silent revolution" in US natural-gas supply since 2007.

With 70% of US ethylene production based on natural-gas liquids, according to the American Chemistry Council (ACC), the ground has shifted thanks to this unconventional shale-gas supply.

"Gas supply has become tight in the Middle East and abundant in the US perhaps for the long term, meaning that US petrochemicals is not dead and buried," claimed the first source.

"I expect export competitiveness from the US to be strong for at least the next three years on the comparatively low prices of natural gas over naphtha."

Thermoplastic exports from the US rose by 16% in the year-to-date as a against a 14% decline in domestic sales, said the ACC in its latest weekly report.

SABIC's GE Plastics acquisition gave the Saudi giant a foothold in this huge market, where handling and distribution costs can act as an effective trade barrier.

There have also been unconfirmed reports of Reliance Industries being interested in acquiring LyondellBasell.

This blog has spent a lot of time tormenting itself over the sustainability of China's extraordinary economic rebound during 2009.

"Just where are all those imports of chemicals and polymers (polymers up 50% year-to-date) going?" we keep on asking.

Perhaps we've got completely the wrong end of the stick, a source politely suggests.

"There's no real need to worry about where this stuff goes because as long as the government is solvent - and it still has massive cash reserves - it will keep GDP (gross domestic product) growth at a minimum of 8-9% per year. The reason is the need to create enough jobs to maintain social stability.

"Quite frankly, if they had to they had to bury polymers and unsold washing machines, fridges and autos etc in landfills, they would do it to keep industrial production moving along at the right level.

"And quicker than you imagine, they will wean the country off too much depedence on industrial production and exports towards better local consumption."

But in the meantime, he has heard of Chinese refrigerators, which contain polymers including polycarbonate (PC), acrylonitrile butadiene styrene (ABS) and polypropylene (PP), flooding export markets.

"It seems that some refrigerators were manufactured for domestic sales and so benefited from government subsidies - but still found their way on to container ships."

Source of picture: www.walletpop.com

By John Richardson

In his own words Paul Hodges of International e-Chem - and also a fellow blogger - puts in a nutshell some of the dangers confronting the chemicals industry as we approach the New Year, with a few interspersed further thoughts from this blog:

"If crude were to fall back to $40 a barrel - where based on fundamentals it should be - this would further cloud visibility about the real state of end-user demand. It would become hard to distinguish between a fall in demand down the chain because of de-stocking and greater caution, and a fall in the final consumption of chemicals.

"Oil at its current price is hindering rather than helping the recovery because we are seeing demand destruction again. This is because we are already seeing greater caution on the part of those companies that recognise the risks of lower demand for chemicals. "For example, as the gasoline price has gone up, people are driving less to the shopping malls in order to buy stuff made from plastics - i.e. discretionary spending."

There are even reports of this happening in China as a result of higher crude and fuel-price liberalisation.

"In Our Feedstocks for Profit Study, and I think this still holds, we saw a green light for growth was $25 a barrel, an amber light $50 a barrel and red at $75-80 a barrel.

"It's generally accepted that demand destruction occurs at $80-100 a barrel."

The last US recession began in December 2007 when crude touched $100 a barrel. This came at the same time as the sub-prime crisis. An important question now is with real wages in the West in decline and unemployment rising are we talking about demand destruction much closer to the $80 a barrel level?

"The crude price is being driven by irresponsible bankers, who are simply focused on generating maximum short-term trading profits (and personal bonuses for themselves). The money to support these trading activities is effectively being provided by taxpayers, as a result of the bailouts that have taken place," continued Hodges.

"The strength in crude oil is directly correlated to movements in the value of the US$, often on a minute by minute basis. This is not about free markets. It is about bankers using the low interest rates now on offer in the US, caused by their earlier greed and reckless lending, to once again bite the hand that feeds them.

"Bankers need to behave more responsibly, especially at a time of crisis such as today. If they are not prepared to do so of their own will, we need effective legislation.

"When this unwinds you could see a big return to dollars, strengthening the currency significantly," Hodges continued.

"This is hardly going to help progress in the US government's effort to make the economy more export-based - part of the global rebalancing efforts."

"Today's oil prices are not the fault of chemicals companies, but they will suffer as a result."

The risk is that the unwinding of these trades causes further disruption. As oil prices fall, so will chemical volumes as everyone de-stocks.

"This is why chemicals companies need good hedging strategies," said Hodges.

"Another problem is the cost in terms of working capital. This will lead to a further problem as demand recovers. When demand is really weak, it's possible to conserve working capital by cutting operating rates and other costs - hunkering down until the recovery arrives.

"But when the recovery does arrive, the difficulty is estimating how much to ramp up rates at the expense of working-capital preservation.

"Demand visibility - even without as yet a collapse in crude - is already extremely poor, making planning very difficult. "

"More companies go bust in an upturn than a downturn, because of the inevitable increase in working capital. This is a major risk in 2010, given the fragile state of the financial system, and banks' unwillingness to lend."

Source of picture: www.wired.com

By John Richardson

THE growth of the carry trade US dollars - leading to a sharp depreciation of the greenback and possibly of many other unintended consequences - represents a major threat to the chemicals industry in 2010.

Any corporate planner with her or his salt should factoring in, and hedging against, the danger that the many warnings about the damage from this trade come true.

Warnings have been issued over the last few weeks by the Chinese government, the International Monetary Fund (IMF), Hong Kong chief executive Donald Tsang and Dallas Fed chairman Richard Fisher.

Economist Nouriel Roubini, who accurately predicted the current economic crisis, has been proclaiming loudly from every available rooftop that this is the "mother of all of carry trades".

He believes that, potentially, it could cause even more damage to the financial system than the crisis from which are still struggling to recover.

But this blog was able to find two people who disagreed: A UBS analyst and a hedge-fund trader. Nothing to worry about, then!

Just as a reminder, the carry trade involves borrowing at zero interest rates in dollars (because of the ultra-loose Fed monetary policy) - and also shorting the US currency on the assumption that it will depreciate.

As the dollar has tumbled - creating extremely good returns - investors have also piled into equities and commodities, incurring very high leverage.

Oil increasingly moves in inverse correlation to the dollar these days so, I suppose, this whole business has gained its own self-perpetuating momentum: The more that investors short the dollar, the more it goes down and the more crude goes up. Sounds like daylight robbery.

Stronger crude - which we've frequently said doesn't reflect current supply and demand - is seen as a false sign that the world economy is in firm recovery.

And so, hey presto, equities rise in response to higher oil prices, resulting in yet more fat profits for the speculators.

The dollar could appreciate by as much as 25% if, all of a sudden, traders are forced to cover their shorts (a phrase that, I am afraid never ceases to appeal to my puerile sense of humour), warns Roubini.

He predicts that one of four events could trigger this new financial calamity:

*The dollar value cannot fall to zero and at some point it will stabilise. The cost of carry would then become zero rather than negative (no more money being made on shorting the greenback)

*The Fed cannot suppress volatility forever. Its $1,800bn purchase plan of mortgage-backed securities and government agency debt such as Fannie Mae's etc will be over by the Spring

 *If growth is on the upside in the third and fourth quarters, markets may start to expect Fed tightening sooner rather than later

*A flight from risk could occur due to concerns over a double-dip recession or a geopolitical crisis - e.g. a US/Israel and Iran conflict

Before listing some of the possible implications for chemicals, it's worth adding the following context.

Big increases in Asian property prices (for example, Hong Kong's are up by 28% this year) start to add up in light of the Fed's ultra-loose monetary policy that's prompted the carry trade.

Asian countries have been forced to follow the Fed in order to prevent their currencies from appreciating too much. 

This is creating dangerous real-estate bubbles in Singapore and South Korea as well as Hong Kong, with all the associated higher levels of consumption which come with the property wealth-effect.

China is different as it's re-pegged the Yuan to the dollar.

But the country's huge economic stimulus package has created the well-documented big rise in property prices and a boom in auto, home appliance and other retail sales.

Meanwhile, China is also benefiting from improved export competitiveness as a result of its currency being reconnected to the weaker greenback.

So those chemicals corporate planners worth their salt should be worrying about:

*The risk of being on the wrong side of overbuilt inventories, or even just the normal 45-60 days of working capital tied up in raw materials, when and if crude takes a tumble

*Confusion over sustainable levels of chemicals demand-growth in housing, autos etc in Asia. If the Fed tightens in response to worries over the impact of excess liquidity so will the rest of the world

*Damage to underlying, or fundamental, demand caused by crude being too high at this point in the economic recovery. My fellow blogger, Paul Hodges, points out that this concern is high within OPEC.

*Chemicals import volumes into China destined for re-exports as finished goods have been supported by the weaker Yuan. These imports could obviously decline if the dollar lurches upwards

*US petrochemicals producers have benefited from dollar weakness and the fall in natural-gas prices relative to crude (70% of US ethylene is derived from natural-gas liquids). Thermoplastic exports are up 16% in the year-to-date with domestic sales down nearly 14%, according to the latest American Chemistry Council (ACC) weekly report. So, again a surge in the greenback would threaten this much-needed compensation for a weak home market. 

When might the carry trade unwind? Nouriel Roubini is not prepared to offer any prediction, but warns that the longer this bubble inflates the worst the consequences will be when it deflates.

Source of picture: www.zrdata.com

ASIAN naphtha prices hit their highest level for more than a year yesterday - reaching $701/tonne CFR Japan for second-half December open-spec material on "improved market conditions".

Earlier this week we picked up more reports of bleak demand in styrenics and fibre intermediates that countered continued optimism in equities and crude markets.

This is also usually the quiet season as petrohemical production declines on weak seasonal demand.

Is the Asian petrochemicals industry ramping up production because it thinks crude is going to get stronger and the real economy is set to improve?

Oil fell to below $77 a barrel yesterday on evidence that US motorists and businesses were cutting back on energy use, according to this Associated Press report.

Have we returned to the demand destruction which caused the economic downturn in the first place?

Despite soaring auto sales in China, there are reports that gasoline consumption is being affected by higher crude, the impact of which is being more keenly felt this year as a result of fuel-price liberalisation.

The Energy Information Administration (EIA) said in its weekly report that US oil and gas supplies grew more than expected last week, even though many oil companies have shuttered refineries as fuel consumption slumps.

US refineries had slowed production to the lowest levels since September 2008 and they were importing nearly 15% less crude than last year, the report added.

This is worying when you think of the state of the economy this time last year. Most other comparative numbers are showing improvements.

What perhaps helps to explain the 15% decline is big new refinery capacities in India and China etc putting pressure the developed-world players.

With refinery runs reduced everywhere in the world except China (where the Chinese refineries are enjoying improved profitability as a result of the fuel-price liberalisation), reduced supply could be another factor behind the rise in naphtha.

But let's take it as read that better demand from petrochemicals is the main driver behind the increase in naphtha.

It would be a very risky business to build inventories right at this moment - given all these uncertainties and the big surge in new petrochemicals capacity.

In today's column it talks about how the total for first-half Gross Domestic Product (GDP) growth numbers for China's 31 provinces was almost 10% higher than the overall figure put out by the National Bureau of Statistics.

This suggests that provincial officials are being encouraged to report high numbers to help create the impression that everything is coming up roses. How can we trust micro numbers, on chemicals production and consumption, for example, if distortions in big headline numbers are taking place?

Retail sales growth of 16.2% in October was also questioned by Lex. These numbers are not a good proxy for real consumption growth because they include shipments to retailers and various types of corporate and government spending.

Strong year-on-year petrochemical production growth recorded for September might be believable because in the same month last year the world economy came to a halt as Lehman Bros folded. Ethylene output grew by 29.4% and polyester production by 33.9%.

The polyester sector might have benefited from market-share gains made in export markets as a result of the 2009 depreciation of the Yuan against other developing-world currencies.

This is the result of a re-pegging of the Yuan to the US dollar, which on Wednesday hit a 15-month low against a basket of trade-weighted currencies.

But China's Central Bank, ahead of a visit to China by President Obama, yesterday acknowledged there was a case for a stronger Yuan.

As if often the chase with the Chinese government, though, only a few days earlier commerce minister Chen Deming had called for the creation of currency stability in order to protect exports.

So it's far from clear if and when China will let the Yuan rise in value, which would likely reduce the volume of chemical imported to be re-exported as finished goods.

As we've said before, lack of clarity on real over apparent domestic demand-growth continues to prompt a nagging suspicion that re-exports are more important than some people think in the recovery story.

The International Monetary Fund (IMF) said at the weekend that the Yuan had become "significantly undervalued" since it was linked again to the dollar.

If insufficient ground isn't given on the Yuan to satisfy the West, how long before politicians start targeting other "unfair" advantages such as this year's reductions in raw-material import tariffs and increases in export-tax rebates?

On an individual industry level, pressure for anti-dumping and other trade measures is likely to only grow - a long with measures outside the control of the World Trade Organisation (WTO) such as safety and environmental standards - if developed economies don't achieve sustained recoveries.

Source of picture: www.pcs.com

Qatar Petroleum International (QPI) sees Singapore as a good base for expanding in to the Far East, said CEO Nasser Al-Jaidah yesterday after the announcement of the new partnership with Shell.

QPI and Shell signed a series of agreements on Wednesday to jointly own 50% of Petrochemical Corporation of Singapore (PCS) and 30% of The Polyolefin Company (Singapore) Pte Ltd (TPC), to be held through a joint venture company called QPI and Shell Petrochemicals (Singapore) Pte Ltd.

Sumitomo Chemical's 70% stake in PCS and 50% share of TPC remain unchanged.

Singapore is becoming an increasingly important energy-storage and trading hub. QPI's closer relationship with the island state - through the Shell deal - could be key in helping to market and sell big new volumes of liquefied natural gas (LNG) and liquefied petroleum gas (LPG).

Qatar's enormous LNG ambitions, through joint ventures with the likes of Shell and ExxonMobil, also leave the issue of getting maximum value out of co or by-product LPG.

There are several options for LPG.

The LPG (propane and butane) can be extracted during natural gas and LNG processing.

It could be used by Qatar for petrochemicals in Qatar itself or elsewhere in the Gulf Co-operation Council (GCC) region.

Another option is to ship the LPG to petrochemical and other customers overseas.

"One of the critical success factors of any petrochemicals facility, whether it is in the Middle East or here in Singapore, is access to competitive feedstock," said Ben van Beurden, executive vice-president of Shell Chemicals, when the deal was announced.

"I'm hopeful that condensates and liquefied petroleum gas (LPG) would flow from Qatar to Singapore as a result of [Qatar Petroleum] taking an investment in these joint ventures."

As we discussed yesterday, this would enable the PCS-TPC joint ventures to better compete against the new wave of bigger feedstock-advantaged Middle East crackers.

Singapore is building an LNG terminal due for completion in mid - to late 2012.

Another probably very unlikely option is to ship "wet" LNG and then extract LPG on arrival. This extraction also involves removing ethane - and so again there's a petrochemical option here.

And finally, some LNG customers - such as power generators - prefer their gas delivered as "wet", creating competing economics for extracting LPG and ethane for petrochemicals.

The QPI-Shell deal raises several more questions which this blog is seeking to answer:

*Will this give extra feedstock flexibility to the new Singapore cracker, due on-stream next year? We understand it will be run mainly on hydrowax from an up-graded hydrocracker. But will an option now be to use condensate/naphtha feedstock via Qatar? How would this work as, if at all, as Shell Eastern - which operates the cracker project - is a separate subsidiary?

*The Pearl gas-to-liquids project (another joint venture between Shell and Qatar Petroleum) will produce condensate as well as ultra-low sulphur diesel. Will this condensate, split into naphtha, be sold directly into the merchant market or used for producing petrochemicals in Qatar? Is this still a possible feed for the Shell cracker project in Qatar and/or are other petrochemical options in Qatar? The background to this we understand that there's a shortage of new gas allocations available from the North Shelf due to an extended moratorium, making it difficult for all the cracker projects in Qatar to go ahead.

*Could the condensate/naphtha from Pearl be supplied to Singapore instead?

*Is developing a new project in China now a priority with QPI over petrochemicals in Qatar?

In China, QPI has a joint venture with PetroChina and Shell (China) Ltd to build a refinery and petrochemical complex at Taizhou in Zhejiang province.

"We are hoping to get approval [for the project] by the end next year," said Al-Jaidah.

Perhaps the biggest of all the priorities might be this joint venture.

But whether or how the closer relationship between QPI and Shell will accelerate this project is not clear.

China is on the whole looking for one of two things from future petrochemical joint-venture partners: Energy supplies (oil and gas) and technology.

The existing QPI and Shell relationship already firmly ticked both of these boxes.

.......and no trite Public Relations-speak answers, please!!!

This is not me, by the way, (my computer is an older model) but the expression about sums it up

www.scienceblogs.com

No matter where you seem to turn these days, whether it's to the refinery industry or to any chemicals production chain, the story is more or less the same: A wide gap between the expectation of recovery - already priced into crude and equity markets - and actual production and consumption.

The demand-growth numbers from China, taken in isolation and not placed into the context of declines elsewhere, continue to amaze.

Auto sales in China continued to boom in October, though at a slower pace than in previous months, according to data from the semi-official China Association of Automobile Manufacturers.

Sales rose 72.5% from a year earlier to 1.23 m vehicles, slower than September's 77.9% increase and August's rise of 81.7% - the year's peak growth rate so far.

Sales have been boosted by government stimulus measures that include rural subsidies and a purchase tax cut on vehicles with engine capacities of as much as 1.6 litres.

Demand for textiles used in cars has been so strong that workers have been forced to put in extra hours following mass lay-offs earlier this year.

But, turning to the styrenics chain, an industry sources said: "Downstream demand in all the big derivatives - acrylonitrile butadiene styrene (ABS), polystyrene (PS), expandable PS (EPS) and styrene butadiene rubber (SBR) is very weak.

"EPS had a good H1, but it's now the down season for construction because its winter. Even taking this into account, consumption is very poor."

Spot PS and ABS prices have been stagnant over the past few weeks while feedstock costs have increased, according to ICIS pricing.

"My worry is that it's all cost-push at the styrene end of the chain and so buyers run the risk of repeating the mistakes of H2 2008, but of course on a much smaller scale." the source added.

What on earth is really going on? This blog will dedicate a big chunk of the rest of its life to try and find out.

Buy now, pay later....

Source: www.examiner.com

Note: There is a special prize for the first blog reader who can explain the above headline.
 

In the 2001 recession, US consumer spending slowed but did not fall, and picked up again very quickly.

In the early 1990s, it dipped a bit but returned to pre-recession levels in a few quarters.

But this recovery is different because of the long-term changes in consumer behaviour in the West, which we've talked about before.

Unemployment in the States is nearing 10% with consumer spending falling in September after four months of improvements.

These gains look as if they came at the expense of savings as people, quite sensibly, took advantage of cash for Clunkers and other government-backed spending schemes.

Cash for Clunkers is over, but Cash for Appliances is about to begin.

However, the government needs to rebalance its budget and fulfil its pledges to rebalance the economy away from over-reliance on consumption.

So can consumer spending continue to be propped up in 2010? If not, what will this mean for chemicals exports to China re-exported as finished goods to the States?

The gap between the real economy in the developed world and the commodity and equity markets remains as wide as ever.

For example, here are the opening lines from an Associated Press story this morning: "Oil prices rose above $78 a barrel Monday in Asia as a weaker U.S. dollar offset signs of slumping consumer demand.

"Benchmark crude for December delivery was up 94 cents to $78.37 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange".

Some delegates at last week's APPEC oil and gas conference in Singapore believed crude could be overvalued by as much as 50%, based on the fundamentals.

"I expect the recovery to be W-shaped," said Gati Al-Jebouri, Chief Executive Officer of Lukoil, in a speech to the conference.

The upward curve of the W might last for some time longer, he added - but Al-Jebouri had no doubts whatsoever that fiscal tightening would be a major factor in preventing a U-shaped rebound.

If oil does decline next year - when reduced quantitative easing makes speculation less attractive, forcing the market to finally catch up with the prospects for real demand - a flight to the dollar is inevitable.

This is hardly going to help the US government's need to make the economy more export-based.

But with the finance industry so well-embedded in Washington, it's hard to envisage legislation that will make financial markets more helpful to the real economy.